Introduction to Economics

Scarcity

Despite what you might think, the resources that you are learning about are all scarce. This means that our demand for these resources will always be higher than our ability to supply them. We do not have enough land, labour, capital and enterprise to satisfy all of our needs and wants, and as a result we must make choices.

Scarcity is considered the basic economic problem. In fact, everything else that you learn in this subject can be traced back to this simple beginning – we can’t have everything, and so we must choose between competing alternatives. To expand on our earlier definition of Economics, you could add that we are looking at the way in which people make these choices, and the consequences that arise as a result of the choices that we make.

Consider an example. Imagine that you were lucky enough to own an entire block of land in the middle of the central business district. Clearly this land is worth a lot of money! You can now use this resource to try and generate an income, but in doing so you will be forced to choose. Should you:

Sell the land and get all of the money now?
Build a car park?
Build an office block?
What about a school? Or a hospital?

The point is, once you have made your choice, you can not have one of the other options.

You might argue that the example was set up in such a way that the area of land is limited. That’s true. But even if you were able to decide how all of the land in Australia was allocated, eventually you would run out. Although we are lucky enough to have access to a lot of land, the resource is limited. And it is this limitation that forces us to make choices.

Current Page: Scarcity